A sole proprietorship is an unincorporated business owned by a single person. This business entity form usually does not require governmental filing, other than a fictitious-business-name statement, which provides the owner’s name and address and the name under which the owner will conduct business. The main advantages of this business entity form is the owner’s absolute control in terms of management rights, and avoidance of double taxation, as a sole proprietorship is not a separate legal entity. The sole proprietor reports the business’s expenses and income on his or her personal income tax return. The main disadvantage of a sole proprietorship is the owner’s unlimited personal liability for the losses of the business. The sole proprietor can freely transfer interest in the business, but the death of a sole proprietor will dissolve the sole proprietorship. Notably, sole proprietorships can also be a “default” entity because if a single person conducts a business without filing with a state to form some other entity (an LLC for example), the business will be considered a sole proprietorship.
In order to become an S corporation, a corporation must submit specific forms to the Internal Revenue Service signed by all the shareholders (Form 2553 Election by a Small Business Corporation). Becoming an S Corporation allows corporations to avoid double taxation on the corporate income by passing corporate income to their shareholders for federal tax purposes (it also enables a corporation to pass losses, deductions, and credits to their shareholders). In essence, becoming an S corporation enables corporations to be taxed as a partnership. The corporation must meet the following requirements in order to qualify for S Corporation status:
(1) it must be a domestic corporation;
(2) it must have only allowable shareholders, who may be individuals, certain trusts, and estates, but may not be partnerships, corporations or non-resident alien shareholders;
(3) it cannot have more than 100 shareholders;
(4) it must have only one class of stock; and
(5) it must not fall into an ineligible corporation category, such as certain financial institutions, insurance companies, and domestic international sales corporations.
 Richard A. Mann & Barry S. Roberts, Smith’s & Roberson’s Business Law 668-670 (15th ed. 2012).
 Roger Meiners, Al H. Ringleb, & Frances L. Edwards, The Legal Environment of Business 368 (11th ed. 2011).
 Id. at 368.
 Revised Uniform Partnership Act (“RUPA”) § 101(6).
 RUPA § 202.
 Mann & Roberts, supra note 1, at 598.
 Revised Uniform Limited Partnership Act (“RULPA”) 201.
 RULPA § 101(7).
 Mann & Roberts, supra note 1, at 645-650.
 RUPA § 1001(c).
 Mann & Roberts, supra note 1, at 654.
 RULPA § 102(9); RULPA § 404(c).
 Meiners, Ringleb, & Edwards, supra note 2, at 380-383.
 Mann & Roberts, supra note 1, at 668-670.
 Constance E. Bagley & Craig E. Dauchy, The Entrepreneur’s Guide to Business Law 56-58 (4th ed. 2011).
 Internal Revenue Code § 1361(b).